ALEX BRUMMER: Britain’s tiny deficit


ALEX BRUMMER: Britain’s pint-sized deficit – the drive to close an alleged £50billion gap in Britain’s public finances is being treated as a national emergency

Tough decisions: Prime Minister Rishi Sunak

The push to close the alleged £50billion gap in Britain’s public finances is being treated as a national emergency.

This is why Rishi Sunak skipped the Cop27 climate change summit overlooking the Red Sea. And George Osborne, now an investment banker, was called in by his former colleague, current Chancellor Jeremy Hunt, to advise him on his specialty in austerity economics.

It’s unclear precisely why all of this is necessary, especially since Hunt reversed much of Truss-Kwarteng’s maligned growth revolution.

But no one wants to take another risk with the pound, the gilt market and the nation’s fixed-rate pensions and mortgages.

Yet, we have to keep all of this in some sort of global perspective.

As this article has pointed out, the International Monetary Fund (IMF) Fiscal Monitor shows that Britain’s debt-to-national output (GDP) ratio is remarkably good compared to our G7 cohorts, with numbers below all except Germany.

Opponents insist that this is the debt trend (which is also improving according to IMF figures) and not the current static state. But as far as anyone can tell, Italy et al don’t have a big plan involving cuts.

Indeed, the new Italian government of Giorgia Meloni is set to benefit from a £232 billion EU bailout if it achieves reform targets.

The worry about British frugality is that it could harm the vulnerable at a time when the war in Ukraine risks turning into strategic new territory.

The IMF insists that it is best for interest rates and fiscal policy to work in the same direction. But the result of such a double whammy is a deep recession.

And the only reason it seems tolerable now is that in at least four of the major economies – the US, Japan, Germany and the UK – unemployment is not a problem.

There doesn’t seem to be a strong risk that Saatchi’s famous slogan “Britain doesn’t work” will make an immediate comeback.

The conundrum is that, in current global terms, the black hole in UK finances looks like a mere trifle. It was the late US Senator Everett Dirksen who reportedly said “a billion here and a billion there” and soon “you’re talking real money”.

In the second decade of the 21st century, this could be scaled to trillions.

President Joe Biden’s Inflation Reduction Act is a $2 trillion giveaway to the United States with some tweaks regarding the taxation of the super rich.

His magnanimous forgiveness of student loans, sold to the public as free, was assessed by the Congressional Budget Office as a $400 billion giveaway.

Who can forget that one of Biden’s first fiscal triumphs was to pass a measure engineered by the Trump administration that dropped $1.9 trillion in helicopter dollars on every person with a social security number in the states? -United.

Just think of overnight events. In a flash, some $200 billion (about a quarter of the UK public finance gap) was wiped out in an instant from the $1.1 trillion market value of Amazon shares. One wonders what is the relationship with British public finances? Well not much, except to illustrate how, on a global scale – and it was international markets that turned against the pound and the gilts – Britain’s fiscal hole is paltry.

The £50bn, based on a slowing economy, is a worst-case scenario.

One of the surprising developments since August, when Labor demanded a cap on energy prices, is that the wholesale price of gas has reversed despite the closure of the Nord Stream 1 gas pipeline which connects Russia to Germany .

Data from the EU shows the price of gas per megawatt-hour in the latest transactions is €100 (£86), down from €339 (£292) in August.

The latest National Grid reports show that the average UK gas price fell by 60% in the week to October 23.

Many long-term gas contracts are hedged so it takes time for market price changes to reach customers.

The cost to the public purse of the highly controversial and truncated energy price guarantee is fading before our eyes, easing the burden on public finances.

My concern is that a government, frightened by the Liz Truss effect, exaggerates the hair shirt.

This will trigger unnecessary misery and hamper growth and business.



About Author

Comments are closed.